Shares follow dollar down as oil price rises

Leading shares have dropped to their lowest level since April 14, after poor US unemployment numbers sent the dollar falling and the oil price rising.

The FTSE 100 ended 88.5 points lower, at 5906.8, with Wall Street down around 250 points by the time London closed.

Crude oil rose to $134.75 (£68.43) a barrel, following news that the US unemployment rate had risen from 5% to 5.5% and comments from Israel that a strike on Iran was increasingly likely. Morgan Stanley poured fuel on the flames by predicting oil would reach $150 by early July.

The news left travel companies - which had been on the way up earlier this week, when the oil price fell - under pressure. British Airways fell the furthest in the leading index, down 8% to 233.5p, while the cruise ship operator Carnival lost 95p to £18.46.

As oil rose, so did metal prices, which helped Xstrata up 145p to £41.07p. Merrill Lynch raised its price target by 14%, to £53, on expectations of a rise in coal prices. On top of that Xstrata, where Brazil's Vale recently called off takeover talks, suggested at a Merrill conference recently it was still interested in bids.

Merrill said: "[Xstrata boss Mick Davis] believes consolidation will continue and a few large, successful diversified groups will prevail. When asked about M&A ('Are you a buyer or seller?') Davis half-jokingly indicated that he had tried to sell, that it had failed and that he would now go back to buying! As ever, the company is considering all its options. Watch this space."